8 min read ยท Last updated September 30, 2026
- Unvested restricted stock units (RSUs), stock options, and shares in an in-progress employee stock purchase plan (ESPP) offering period are, by default, forfeited at termination unless the plan document or your severance agreement says otherwise.
- Vested stock options typically come with a post-termination exercise (PTE) window, often 90 days, though some companies grant longer, and missing it means the options expire worthless.
- Exercising an incentive stock option (ISO) more than 3 months after your last day loses its favorable tax treatment under Internal Revenue Code Section 422 and is taxed instead as a nonstatutory option.
- Research on layoff severance packages has found that 70% of companies now offer some vesting acceleration, so this is worth negotiating before you sign a release, not assuming it’s off the table.
A layoff forfeits unvested stock options, RSUs, and any in-progress ESPP shares by default, while vested options typically must be exercised within a 90-day post-termination window, and exercising an incentive stock option after that window closes converts it to less favorable ordinary-income tax treatment.
In this article
- The email and the clock it starts
- What to check in the next 24 hours
- The tax rules that activate the moment you exercise
- The mistakes that cost the most money
- What to do at 30, 60, and 90 days
- Frequently asked questions
The layoff notice sets your last day for two weeks from today, and by default, two very different things happen to your equity on that date: unvested shares disappear, and a 90-day clock starts on every option you had already earned.
The email and the clock it starts
Unvested restricted stock units (RSUs), unvested stock options, and shares still accumulating in an unfinished employee stock purchase plan (ESPP) offering period are typically forfeited outright. A real company severance filing on record with the Securities and Exchange Commission (SEC) states this plainly: “any unvested Equity Awards are forfeited for no consideration,” the same default that a severance packet’s own signing deadline can lock in if you sign without negotiating.
Vested options work differently, on a deadline. Most agreements give you a limited post-termination exercise (PTE) window, commonly 90 days, set by your specific plan and sometimes longer. One real company plan filed with the SEC gives departing board members nine months instead of three. Miss your own plan’s window and the option expires, even though you already earned it.
What to check in the next 24 hours
Pull your actual stock option agreement or RSU grant document, not just what you remember being told when you were hired. Confirm three numbers: exactly how many shares or options are vested as of your last day, the exact length of your plan’s post-termination exercise window, since it is not guaranteed to be the common 90 days, and the strike price on any vested options compared to the stock’s current fair market value.
If you are mid-cycle in an employee stock purchase plan, check what happens to your contributions. Under the standard mechanic used by most Section 423 employee stock purchase plans, a termination in the middle of an offering period simply withdraws you from that period and refunds your payroll contributions, without interest, and without any shares being purchased. One real company plan document states it directly: “If your employment… were to terminate for any reason during an offering period you will be withdrawn from the program and your contributions refunded (without interest).”
The tax rules that activate the moment you exercise
If your vested options are incentive stock options (ISOs), the clock on tax treatment is shorter than most people assume. Under Internal Revenue Code Section 422, you generally have to exercise within 3 months of your last day of employment to keep the ISO’s favorable tax treatment. Exercise later than that, and the same option is taxed as a nonstatutory stock option (NSO) instead, even though nothing else about the grant changed.
The two tax paths land very differently. Exercising an ISO inside that 3-month window triggers no regular income tax at exercise, but the entire spread between what you paid and the stock’s fair market value becomes an Alternative Minimum Tax (AMT) preference item. The Internal Revenue Service’s (IRS) own instructions for calculating this walk through the exact math: multiply the fair market value per share by the number of shares exercised, subtract what you actually paid, and that difference is your AMT adjustment for the year, regardless of whether you can sell any of the stock to cover the resulting tax bill.
Exercising an NSO works differently. The entire spread is ordinary income in the year you exercise, reported on your W-2 in Box 12 under Code V, and subject to regular withholding, the same as a paycheck, whether or not you can sell shares to cover it.
As a hypothetical, illustrative example: 4,000 vested options with an $8 strike price and a $22 current fair market value gives a $14-per-share spread, or $56,000 total. Exercised as ISOs inside the 3-month window, that full $56,000 becomes an AMT preference item, potentially triggering real AMT liability the following spring with no stock sale to fund it if the company is still private. Exercised as NSOs, or as ISOs exercised after the 3-month window closes, that same $56,000 is ordinary income subject to withholding immediately, the same tax treatment either way once the ISO window has passed.
The mistakes that cost the most money
The first mistake is assuming unvested equity is simply gone and that there is nothing to negotiate. Research on layoff severance packages, compiled by the compensation-education firm myStockOptions.com, citing data from the executive-pay research firm Peer Group, found that 70% of companies now offer some form of vesting acceleration as part of severance, with Microsoft and Zoom named as examples offering as much as six months of additional vesting credit. This has to be asked for and negotiated before you sign, not assumed to be unavailable, and it runs on its own clock separate from any 401(k) loan offset deadline from the same layoff.
The second mistake is signing the severance agreement’s general release of claims without reading what it does to your stock rights. A release that is broader than intended has, in real litigated cases, been read to extinguish an employee’s rights to vested or unvested options they expected to keep. Read that specific section, or have an attorney read it, before signing anything.
The third mistake is letting the 3-month ISO clock pass by accident while still deciding what to do. Missing that date does not forfeit the option outright, but it silently converts it to NSO tax treatment, trading a potential AMT bill for a certain ordinary-income and withholding bill, without you necessarily realizing the trade happened.
What to do at 30, 60, and 90 days
At day 1 to 3, get your actual grant documents and confirm your vested share count, your plan’s exact post-termination exercise window, and your strike price versus current fair market value.
At day 3 to 14, before signing any severance release, ask specifically about extending the exercise window or accelerating a portion of unvested shares, and have someone read the release language to confirm it does not wipe out equity rights you intend to keep.
At day 14 to 90, if you plan to exercise vested options, decide whether the ISO 3-month window still applies to you and calculate the realistic AMT or ordinary-income cost using your actual numbers, not a guess, before the money is due.
By whatever date your plan’s post-termination exercise window actually ends, whether that is 90 days or something else confirmed in your documents, either exercise or knowingly let the vested options expire. There is no extension once that date passes without your company’s separate written agreement to one.
| Equity type at termination | Default outcome | What changes it |
|---|---|---|
| Unvested RSUs or options | Forfeited for no consideration | An explicit acceleration clause negotiated into severance |
| Vested stock options | Must be exercised within the plan’s post-termination exercise window, often 90 days | A negotiated extension of the exercise window |
| Vested ISO exercised within 3 months | No regular income tax; full spread is an AMT preference item | Nothing; this is the standard ISO tax path |
| Vested ISO exercised after 3 months, or any NSO | Full spread is ordinary income, reported on Form W-2, Box 12, Code V, subject to withholding | Nothing; this is the standard NSO tax path |
| In-progress ESPP offering period | Withdrawn from the plan, payroll contributions refunded without interest, no shares purchased | Typically nothing; this is the standard plan mechanic |
Frequently asked questions
What happens to unvested stock options or RSUs when I’m laid off? By default, they are forfeited for no consideration, the same as if they had never been granted, unless your specific plan document or a negotiated severance agreement says otherwise. This is the standard mechanic across most company equity plans.
How long do I have to exercise vested stock options after a layoff? It depends on your plan, but 90 days is a common default post-termination exercise window. Some companies grant longer windows. Confirm your exact deadline in your own grant documents rather than assuming 90 days applies.
What’s the tax difference between exercising an incentive stock option and a nonstatutory stock option? An incentive stock option (ISO) exercised within 3 months of your last day triggers no regular income tax, but the full spread becomes an Alternative Minimum Tax (AMT) preference item. A nonstatutory stock option (NSO), or an ISO exercised after that 3-month window, makes the full spread ordinary income subject to standard payroll withholding.
Can I negotiate for my unvested equity or a longer exercise window in my severance agreement? Yes, and it is worth asking for directly. Industry research on severance packages has found many companies already offer some form of vesting acceleration or extended exercise windows, particularly for larger layoffs, but it generally has to be requested before you sign.
What happens to my employee stock purchase plan (ESPP) contributions if I’m laid off mid-cycle? Under the standard mechanic most plans use, you are withdrawn from the current offering period and your payroll contributions are refunded without interest. No shares are purchased for that unfinished period.
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